Recap of Sat., February 22: Blame the French?

Brenda Buttner and was joined by: Gary B. Smith, RealMoney.com columnist; Pat Dorsey, director of stock research at Morningstar.com; Tobin Smith, founder and chairman of ChangeWave Research; Scott Bleier, president of HybridInvestors.com; and Rob Black, president and portfolio manager of GLB Group.

Trading Pit

Are the French to blame for your suffering stocks?

Many feel the stock market would love to see Saddam Hussein out of power…it would just prefer that we remove him with international support. And right now, France’s opposition to the war is the biggest reason we have not received that international support.

Tobin said the French are to blame for our messy market and the worst part is that they’re happy about it.

Even though he’d love to blame French president, Jacques Chirac, Rob doesn’t think the French are not to blame. We have been in a 3-year bear market and bad corporate earnings are the true culprits for the market’s woes. He said investors should now be buying great companies…just maybe not French ones.

Gary B. charted the S&P 500 and said that the French have been no help at all to this market. He thinks we are going to be in bear mode until we cross 875.

Pat said the French are playing the delay game, but the war is going to happen. He agrees with Rob and thinks investors should be buying stocks now.

Scott thinks that if the French were on our side we’d already be at war. Like Rob and Pat, Scott also thinks now is the time to be buying stocks.

Rob then added that France is not supporting the war because Iraq is its business ally. Toby said every American should do their part and boycott French wine. Gary B. thinks that if we can get the world’s support to attack Iraq, it would be one less thing the market has to worry about, and it would respond and head higher.

Stock X-Change

Much of America is pretty unhappy with France's behavior lately. But should you hold it against French stocks…or are they moneymakers in disguise? Toby, Scott and Rob gave their opinion on Alcatel (ALA), Vivendi Universal (V) and TotalFinaElf (TOT). These are companies that are based in France, but are traded here on the New York Stock Exchange.

First up the trio examined Paris based telecom equipment maker, Alcatel. At one time this stock was trading in the $80 range. Not anymore though. It closed Friday at $7.21. Rob does not like the company because its sales have fallen 25 percent. He called it a “poor man’s Cisco” (CSCO) and advised any investor who owns it, to sell into any strength. Toby added that Alcatel lost $2 billion last year, the companies it sells to are broke, and it is worth $4 a share at most. Scott also does not like Alcatel.

Next, Vivendi Universal. The entertainment and environmental services giant started buying companies like crazy and developed big debt problems.

Scott said the company is very much like AOL Time Warner (AOL). And like AOL, it has come down enough to be an interesting speculation. Vivendi closed Friday at $15.59, and Scott said he’d buy the stock if it closed below $15. Rob said his mother gave him a bit of advice when buying stocks and that was to never buy a stock that has been raided by the FBI. Like Scott, Toby thinks the stock is interesting. Toby said John Malone of Liberty Media (L) is interested in acquiring Vivendi’s entertainment businesses and Vivendi has a 6.5 percent dividend. Toby would also buy it under $15.

And lastly they looked at French oil giant, TotalFinaElf. It has a sweetheart deal to develop Iraqi oil fields. But if Saddam Hussein is removed from power, TotalFina will almost certainly lose the deal. Toby thinks that if France backs the war, this stock is a buy. However if France does not support the war, TotalFina will be hurt badly. Rob said the stock has a great dividend. Also, oil’s not sexy and not sexy is working very well on Wall Street right now. Scott does not like any of the major oil companies’ stocks. However, if he had to buy an oil company, he wouldn’t buy TotalFina, but would rather buy British Petroleum (BP) or ExxonMobil (XOM).

Chartman

A construction worker and a substitute schoolteacher just got one million dollars. His name is Evan. Hers is Zora. It may sound like a fairy tale, but that’s exactly what happened on Joe Millionaire.

They're both in their late 20s and Pat said that if they wanted to turn that million dollars into the fifty million Joe Millionaire was supposed to have, they should start buying Berkshire Hathaway Class B (BRK.B), Robert Half International (RHI) and Northern Trust (NTRS).

He recommends and owns Berkshire Hathaway because it is trading around $2,100 and he thinks it is worth $2,900. He explained that the real key to Berkshire's strength is its insurance business. The nice thing about insurance is that clients pay you premiums before you have to pay them claims. This is essentially an interest-free loan that its chairman and CEO, Warren Buffett, can invest however he likes. Insurance industry pricing is on the rise, and Berkshire's Geico and General Re subsidiaries should benefit from this trend.

Gary thinks Evan and Zora should buy it too. He said even though the stock has been very volatile and really has made no progress since its 1998 high, he’d still buy it, but would sell at $2,500.

Pat also chose Robert Half International for the young couple. Pat likes this temporary-staffing firm because it has a strong balance sheet, experienced and capable management, high returns on capital, and plenty of free cash flow. Pat said if the company has an 8 percent rebound in revenue this year and 15% thereafter—which is well below historical levels—the shares are worth about $20. But this is a cyclical company, so a delay in an economic rebound would definitely hurt Robert Half. (This stock closed on Friday at $14.21)

But Gary wasn’t sure if he’d give a necklace to the stock. When he charted Robert Half, he showed that the stock has been in a nasty downtrend since November. But, he thinks it is due for a bounce. He advised to buy the stock if it can close above that downtrend level, which would be in the $14 area.

Pat said buying Northern Trust will help Evan and Zora buy their own chateau. Investors who own this stock are making the bet that the rich will get richer because Northern manages money for some of the country's wealthiest individuals. It only makes loans to fee-paying customers, which limits the risk of bad loans eating into profits. The company is aggressively expanding into New York, and has an opportunity to pick up a lot of new clients. Pat thinks the stock could be worth $50 within a few years. (Northern closed at $32.19 on Friday.)

Gary responded that his reason for buying the stock wouldn’t be for money or love…but pain! He explained that the stock is extremely weak and has been going down for years. He wouldn’t buy Northern unless it showed some strength and closed above $35.